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Concept explainers
a.
To prepare: Balance sheet immediately following the merger.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
a.
![Check Mark](/static/check-mark.png)
Explanation of Solution
The balance sheet immediately following the acquisition:
Company BSCombined Balance SheetJanuary 1, 20X3 | |||||
Assets | Amount ($) | Amount ($) | Liabilities | Amount ($) | Amount ($) |
Current Assets | Current Liabilities | ||||
Cash and Receivables | 110,000 | Current Liabilities | 100,000 | ||
Inventory | 142,000 | ||||
Common Stock | |||||
Fixed Assets | Capital Stock | 214,000 | |||
Land | 115,000 | Capital in excess of Par value | 216,000 | ||
Plant and equipment | 540,000 | 240,000 | |||
Less: | (150,000) | 390,000 | |||
13,000 | |||||
770,000 | 770,000 |
Table (1)
Working Note:
1. Calculation of goodwill:
Particulars | Amount ($) |
Fair value of compensation given | 210,000 |
Less: Fair value of net assets acquired | (197,000) |
Goodwill | 13,000 |
Table (2)
b.
1
To prepare: The
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
b.
1
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculation of stockholders’ equity:
Particulars | Amount ($) |
Capital Stock | 222,000 |
Capital in excess of par value | 328,000 |
Retained earnings | 240,000 |
Total | 790,000 |
Table (3)
2
To prepare: The stockholders’ equity section of the combined company by issuing 1,800 shares of common.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
2
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculation of stockholders’ equity:
Particulars | Amount ($) |
Capital Stock | 236,000 |
Capital in excess of par value | 524,000 |
Retained earnings | 240,000 |
Total | 1,000,000 |
Table (4)
3
To prepare: The stockholders’ equity section of the combined company by issuing 3,000 shares of common.
Introduction: Internal expansion refers to situation in a company forms a subsidiary by transferring some of its assets and liabilities and in exchange of ownership shares. Shares of the subsidiary is either provided to the shareholders in addition to their existing shares (Spin off) or in exchange of their existing shares (split off).
3
![Check Mark](/static/check-mark.png)
Explanation of Solution
Calculation of stockholders’ equity:
Particulars | Amount ($) |
Capital Stock | 260,000 |
Capital in excess of par value | 860,000 |
Retained earnings | 240,000 |
Total | 1,360,000 |
Table (5)
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Chapter 1 Solutions
EBK ADVANCED FINANCIAL ACCOUNTING
- P Company issues Php500,000 shares of its own Php10 par common stock for the net assets of S Company in a merger consummated on July 1, 2020. On this date, P stock is quoted at P20 per share. Summary of Balance sheet data for the two companies at July 1, 2020, just before combination, are as follows: Calculate the retained earnings of P Company immediately after the combination:arrow_forwardPamrod Manufacturing acquired all the assets and liabilities of Stafford Industries on January 1, 20X2, in exchange for 4,100 shares of Pamrod’s $20 par value common stock. Balance sheet data for both companies just before the merger are given as follows: Pamrod Manufacturing Stafford Industries Balance Sheet Items Book Value Fair Value Book Value Fair Value Assets Cash $ 84,000 $ 84,000 $ 30,000 $ 30,000 Accounts Receivable 103,000 103,000 56,000 56,000 Inventory 215,000 376,000 112,000 153,000 Land 59,000 89,000 49,000 26,000 Buildings and Equipment 608,000 542,000 402,000 344,000 Less: Accumulated Depreciation (236,000 ) (141,000 ) Total Assets $ 833,000 $ 1,194,000 $ 508,000 $ 609,000 Liabilities and Equities Accounts Payable $ 66,000…arrow_forwardOn January 1, 2018, PNB and Allied Bank entered into a contract of merger wherein PNB will issue 100,000 ordinary shares with par value of P10 and quoted price of P20 to the existing shareholders of Allied in exchange for the net assets of Allied Bank. PNB paid acquisition related cost of business combination amounting to P100,000 and stock issuance cost amounting to P200,000. As of December 31, 2017, PNB has total assets with book value of P50M and fair market value of P60M while Allied Bank has total assets with book value of P5M and fair market value of P4M. The amount net assets of Allied Bank on December 31, 2017 is P2.6M. What is the amount of total assets of PNB on January 1, 2018 after the merger? Group of answer choices 54,100,000 64,100,000 65,100,000 55,100,000arrow_forward
- Prior to a potential merger Veggie Co has $6,150 in total earnings with 1800 shares outstanding at a market price per share of $41. Fruits Inc has $3,300 in total earnings witg 1,235 shares outstanding at $26 per share. Assume Veggie Co acquires Fruit Inc via an exchange of stock price of $28 for each share of Fruit Inc stock. Both companies have no debt outstanding. What will Veggie Co earnings per share be after the merger? A) 3.58 B) 3.32 C) 2.67 D) 3.04 E) 3.95arrow_forwardOn January 1, 2018, PNB and Allied Bank entered into a contract of merger wherein PNB will issue 100,000 ordinary shares with par value of P10 and quoted price of P20 to the existing shareholders of Allied in exchange for the net assets of Allied Bank. PNB paid acquisition related cost of business combination amounting to P100,000 and stock issuance cost amounting to P200,000. As of December 31, 2017, PNB has total assets with book value of P50M and fair market value of P60M while Allied Bank has total assets with book value of P5M and fair market value of P4M. The amount net assets of Allied Bank on December 31, 2017 is P2.6M. What is the goodwill/(gain on bargain purchase) arising from business combination? Group of answer choices 400,000 (600,000) 600,000 800,000arrow_forwardprior to a potential merger veggie co has $6,150 in total earnings with $1,800 shares outstanding at a market price per share of $41. Fruits ince has $3300 in total earnings with 1235 shares outstanding at $26 per share. assume veggie co acquires fruits inc via an exchange of stock at a price of $28 for each share of fruits inc stock. both veggie co and fruits inc have no debt outstanding. what will veggie co earning per share be after the merger? A. 3.58 B. 3.32 C. 2.67 D. 3.04 E. 3.95arrow_forward
- On January 1, 20X2, Parent Inc. issued 32,000 shares of its P10 par value common stock for all the outstanding shares of Son Company. The fair value of Parent Inc.'s stock is P25 per share. Parent Inc. pays P50,000 in registering the stocks. Given below are the statements of financial position (SFP) of the companies before the acquisition: Parent Inc. Statement of Financial Position January 1, 20X2 Assets Liabilities and Equity P200,000 Accounts Payable 185,000 Bonds Payable 190,000 Common Stock, P10 par value 300,000 Additional Paid-In Capital (APIC) 740,000 Retained Earnings 420,000 Total Liabilities and Equity Cash P210,000 420,000 400,000 500,000 505,000 P2,035,000 Accounts Receivable Inventory Land Building, net of depreciation Equipment, net of depreciation Total Assets P2,035,000 Son Company Statement of Financial Position January 1, 20X2 Book Value Fair Value Accounts Receivable P55,000 130,000 85,000 320,000 140,000 P730,000 P55,000 150,000 130,000 500,000 300,000 P1,135,000…arrow_forwardData for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging. Item Henry Company Mayor Services Earnings Available for Common Stock $225,000 $50,000 Number of Shares of Common Stock Outstanding $90,000 $15,000 Market Price per Share $45 $50 Calculate the ratio of exchange in market price. Calculate the earnings per share (EPS) and price/earnings (P/E) ratio for each company.arrow_forwardOn January 1, 20X2, Parent Inc. issued 32,000 shares of its P10 par value common stock for all the outstanding shares of Son Company. The fair value of Parent Inc.'s stock is P25 per share. Parent Inc. pays P50,000 in registering the stocks. Given below are the statements of financial position (SFP) of the companies before the acquisition: Parent Inc. Statement of Financial Position January 1, 20X2 Assets Liabilities and Equity P210,000 420,000 400,000 500,000 505,000 P2,035,000 Cash P200,000 Accounts Payable 185,000 Bonds Payable 190,000 Common Stock, P10 par value 300,000 Additional Paid-In Capital (APIC) 740,000 Retained Earnings 420,000 Total Liabilities and Equity P2,035,000 Accounts Receivable Inventory Land Building, net of depreciation Equipment, net of depreciation Total Assets Son Company Statement of Financial Position January 1, 20X2 Book Value Fair Value P55,000 150,000 130,000 500,000 300,000 P1,135,000 Accounts Receivable Inventory Land P55,000 130,000 85,000 320,000…arrow_forward
- Prior to the merger, Glassons has $1,250 in total earnings with 750 shares outstanding at a market price per share of $42. Country Road has $740 in total earnings with 220 shares outstanding at $18 per share. Assume Glassons acquires Country Road via an exchange of stock at a price of $20 for each share of Country Road's stock. Both Glassons and Country Road have no debt outstanding. What will the earnings per share of Glassons be after the merger?arrow_forwardData for Henry Company and Mayer Services are given in the following table. Henry Company is considering merging with Mayer by swapping 1.25 shares of its stock for each share of Mayer stock. Henry Company expects its stock to sell at the same price/earnings (P/E) multiple after the merger as before merging. Item Henry Company Mayor Services Earnings Available for Common Stock $225,000 $50,000 Number of Shares of Common Stock Outstanding $90,000 $15,000 Market Price per Share $45 $50 Calculate the price/earnings (P/E) ratio used to purchase Mayer Services. Calculate the post-merger earnings per share (EPS) for Henry Company. Calculate the expected market price per share of the merged firm. Discuss this result in light of your findings in part a.arrow_forwardThe balance sheets of Cat company and Rat company as of January 1, 2019 are presented below. On that date, after extended period of negotiation, the companies agreed to merge all assets Cat Rat Cash 50.000 20,000 Receivable 80,000 20,000 Inventories 200,000 200,000 Plant and Equipment (net) 20,000 60,000 Total Assets 350,000 300.000 Calculate total net assets of alter merger. Select one: a. OMR 50,000 b. OMR 350,000 c. OMR 300,000 d. OMR 650,000arrow_forward
- EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
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